The identity and group affiliation of the slain militant is yet to be ascertained, a police official said.
The operation is going on as security forces believe one more militant is hiding in the under-construction building.
The encounter between militants and security forces, which began yesterday after the ultras tried to attack a CRPF camp, resumed this morning after an overnight lull.
The operation to flush out the militants is in its final stage and is expected to end soon, Inspector General of Police (IGP), Kashmir, S P Pani said here.
Asked about the number of militants, the IGP said, We suspect they are two but that will only be confirmed once the operation is over.